Abstract

http://ssrn.com/abstract=186136
 
 

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Dollarization and Seignorage: How Much is at Stake?


Stephanie Schmitt-Grohe


Duke University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Martin Uribe


Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)



Abstract:     
When a government decides to dollarize its economy, that is, to replace the domestic currency with the U.S. dollar, it automatically ceases to collect the stream of seignorage revenue, which is instead redirected toward the U.S. government. A central issue in the debate about dollarization is the distribution of seignorage between U.S. and the economies that are considering the adoption of the dollar as the sole legal tender. A pre-requisite for designing meaningful seignorage sharing rules is to asses the amount of resources that are at stake. A common misconception is that the amount of seignorage income involved is simply equal to the interest income on the amount of foreign reserves required to exchange the entire domestic money supply for dollars. This way of measuring the loss of seignorage income is in general biased for it implicitly assumes no growth in monetary assets. In this note we show that this bias can lead to enormous underestimations of the amount of seignorage revenue lost by governments of countries that dollarize.

Number of Pages in PDF File: 3

JEL Classification: F41

working papers series


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Date posted: November 15, 1999  

Suggested Citation

Schmitt-Grohe, Stephanie and Uribe, Martin, Dollarization and Seignorage: How Much is at Stake?. Available at SSRN: http://ssrn.com/abstract=186136 or http://dx.doi.org/10.2139/ssrn.186136

Contact Information

Stephanie Schmitt-Grohe (Contact Author)
Duke University - Department of Economics ( email )
Durham, NC 27708-0204
United States
919-660-1889 (Phone)
919-684-8974 (Fax)
HOME PAGE: http://www.econ.duke.edu/~grohe
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Martin Uribe
Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )
420 W. 118th Street
1022 International Affairs Building, MC 3308
New York, NY 10027
United States
212-851-4008 (Phone)
212-854-8059 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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